Officials results are due to be released on Monday, but Tadic conceded defeat and congratulated his opponent on Sunday night as preliminary results showed Nikolic on course to gain about 50 per cent of votes.

"I congratulate him [Nikolic] on the victory, it was a fair and well-earned victory and I wish him luck," said Tadic, a pro-western leader in power since 2004 who is credited by supporters with ending Serbia's isolation and aligning the country with the European Union.

Serbia's Centre for Free Elections and Democracy, an independent polling group, said that Nikolic had won 49.7 per cent of votes, while Tadic received 47 per cent. Turnout was about 47 per cent, according to officials.

Addressing supporters in Belgrade, Nikolic said: "This is the height of my political career and the happiest day in my life."

A formerly staunch nationalist who once served in the government of Serbia's wartime leader Slobodan Milosevic, Nikolic has softened his opposition to European integration in recent years and said the country "would not stray from the European path".

"I wish to assure you that Serbia can be a modern, normal country," he said.

But Nikolic said he would not abandon Serbs in Kosovo, the Albanian-majority breakaway province that declared independence from Belgrade in 2008, suggesting he could take a harder line than Tadic's government, which opened negotiations with Pristina, which the European Union had made a condition of its consideration for membership status.

In a statement, the European Union's two most senior officials congratulated Nikolic and said the election result had handed him a strong mandate to pursue further European integration.

"Serbia will need to continuously demonstrate its adherence to the spirit of co-operation and reconciliation in the region," said Herman Van Rompuy, the president of the European Council, and Manuel Barroso, the president of the European Commission.

"It will be essential to see the momentum of reforms continuing in order to confirm that Serbia sufficiently fulfils the political criteria, and makes further progress in the dialogue between Belgrade and Pristina with a view to a visible and sustainable improvement of relations."

'Electoral earthquake'

The result has surprised Serbian analysts, with most opinion polls suggesting that Tadic, who came ahead of Nikolic in the first round of voting and defeated him in previous presidential elections in 2004 and 2008, would be returned for a third term by a comfortable margin.

"This was an electoral earthquake, a totally unexpected result," political analyst Slobodan Antonic said on Serbia's RTS state television.

Nikolic's victory marks the culmination of a political rebranding which saw him break away from the hardline Radical Party in 2008 to form the less stridently nationalist Progressive Party.

Tadic had focused his campaign on further EU integration and economic development, pledging that Belgrade would start EU membership talks before the end of year if voters handed him a third mandate.

But faced with the financial crisis in Europe and beyond, which slowed down much-needed foreign investment, Tadic's government has seen massive job losses and plummeting living standards.

Nikolic struck a chord with voters who appreciated his criticism of widespread social injustice and corruption in Serbia and promises of jobs, financial security and billions of dollars in foreign investment.

The new president's first task will be to name a prime minister to form a new government.

While the Progressive Party won the most seats in parliamentary elections earlier this month, Tadic's Democratic Party and the third-placed Socialists, who governed together in the previous parliament, have agreed to form a majority coalition.

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